News behind the news. This picture is me (white spot) standing on the bridge connecting European and North American tectonic plates. It is located in the Reykjanes area of Iceland. By-the-way, this is a color picture.

Some federal judges have ruled that by placing so much power — including an independent budget that Congress doesn’t control — in a single director, the CFPB violates the Constitution. But a ruling earlier this year by the full U.S. Circuit Court of Appeals for the District of Columbia upheld the singe-director structure.

Let’s take a look at the inception of the CFPB. The CFPB is the brainchild of Massachusetts Senator Elizabeth Warren. It was passed as part of the Dodd-Frank Act. The Dodd-Frank Act was Congress’ way of dealing with the housing bubble that caused the recession of 2008. However, the congressional solution was aimed at banks and Wall Street. It made no mention of the role that Congress had played in creating the housing crisis and made no effort to take responsibility for their actions or prevent a repeat of the problem.

In 1995 The Community Reinvestment Act (CRA) was changed, allowing Fannie Mae to purchase $2 billion of “My Community Mortgage” Loans, pilot vendors to customize affordable products for low and moderate income borrowers. Some of the things done to make the loans more affordable were low (or no) down payments and variable interest rates. Fannie Mae guarantees mortgages and then sells them to banks and investors. Banks were forced to issue sub-prime mortgages or pay large penalties. As more people took out mortgages, the price of houses rose quickly. In 2005, 91 percent of Fannie Mae loans were variable rate loans. In 2004, 92 percent of Fannie Mae subprime loans were variable rate loans. Interest rates rose, gas prices increased, and people could not pay their mortgages. The subprime market collapsed, and foreclosures increased rapidly. Banks stopped making mortgage loans.

There were efforts made to stop this train. On September 11, 2003, The New York Times reported:

Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.

…a new agency would be created within the Treasury Department to assume supervision on Fannie Mae and Freddie Mac, the government-sponsored companies that are the two largest players in the mortgage lending industry.

The Democrats opposed the reform. Barney Frank, a Democrat from Massachusetts, said that it would mean less affordable housing. Melvin Watt, a Democrat from North Carolina, said that it would limit the ability of poor families to get affordable housing.

In 2005, John McCain warned of a coming mortgage collapse. He sponsored S.190 (109th), Federal Housing Enterprise Regulatory Reform Act of 2005. The Democrats blocked it. It was again brought up and blocked in 2007.

Opensecrets.org lists campaign contributions to politicians. Fannie Mae gave generously to insure that it would not be regulated. Some Democrats and Fannie Mae executives had ‘sweetheart’ loans from mortgage companies that were heavily involved in sub-prime mortgages.

So where am I going with this? The housing bubble was created by bad legislation. Bad legislation continues. In August 2016, The New York Post reported:

The Obama administration is doing its best to give the nation another mortgage meltdown.

As Paul Sperry recently noted in The Post, Team Obama has pushed mortgage lenders to offer home loans to folks with shaky credit, setting up conditions for another housing-market collapse.

Wasn’t the last one bad enough?

Credit scores of approved borrowers, for example, have been trending down, even as their debt levels have grown.

The Federal Housing Administration and government-sponsored “independent” lenders Fannie Mae and Freddie Mac have been demanding lower credit standards — just as the feds did starting under President Bill Clinton, in pursuit of the same “affordable housing” goal.

Some borrowers need only put 3 percent down to get a Fannie Mae loan — even if the downpayment is a gift. Fannie also has started up a new subprime lending program.

The Office of the Comptroller of the Currency recently warned that mortgage underwriting standards have slipped and now reflect “broad trends similar to those experienced from 2005 through 2007, before the most recent financial crisis.”

The Consumer Financial Protection Board (and Dodd-Frank) were not related to the cause of the 2008 recession–the recession was the result of bad laws. Both the CFPB and Dodd-Frank need to go away. They are nothing but a blatant example of government overreach.

As you can see, it has taken almost eight years to get back to where we were in 2008. The other interesting number is the Workforce Participation Rate. Here is that chart:

The number of people participating in the workforce has dropped steadily since 2009.

We have not recovered from the recession that followed the collapse of the housing bubble. I would like to remind everyone what caused that collapse and who was actually responsible for it.

The root of the collapse of the housing market is the Community Reinvestment Act (CRA) passed by Jimmy Carter in 1977. The idea of the law was to make housing more affordable for low income families and to make sure minorities were not discriminated against. The intentions were good.

In 1995 President Clinton added some new provisions to the Community Reinvestment Act. Part of these revisions allowed CRA loans containing subprime mortgages to be traded with securities. Banks were forced to issue $1 trillion in subprime loans. There were sit-ins at annual meetings of major banks to pressure them to issue loans in risky neighborhoods. Banks were threatened with fines if they denied loans in risky neighborhoods. The normal rules for issuing mortgages were suspended because of government interference and pressure.

In 2000 Fannie Mae announced it would purchase $2 billion of “My Community Mortgage” loans. The idea was to customize affordable products for low and moderate income borrowers. Fannie Mae and Freddie Mac moved into the subprime mortgage market. Fannie Mae is a government-sponsored entity that guarantees mortgages and then sells them to banks and investors. Fannie Maw pursued subprime mortgages to increase their profit–the more mortgages Fannie Mae sells, the more money it makes. House prices began to rise as more loans became available and more people purchased houses.

Mortgage products were created to make home buying something people at all income levels could afford. Interest only loans, adjustable loans, and variable rate loans were created. Qualifications for borrowers were loosened–no income verification, no money down. Banks had to issue subprime mortgages or face penalties.

In 2004, 92% of Fannie Mae subprime loans were variable rate. In 2005, the number was 91%. Fannie Mae told banks that they would guarantee the subprime loans. House prices rose, interest rates rose, variable interest rates increased and payments got bigger. Gas prices went up, so low-income borrowers were squeezed. Some borrowers stopped paying, and bankers stopped lending. The subprime mortgage market collapsed. Foreclosures began, and home prices fell. Banks collapsed due to worthless government sponsored securities.

Before the revisions to the CRA, home prices rose at about the rate of inflation. After the CRA revisions, the rapid rise of home prices created a bubble. When prices rose quickly, speculation also rose. This further fueled the bubble.

In 2003 President Bush proposed an agency inside the Treasury Department to oversee Fannie Mae and Freddie Mac. The Democrats in Congress stopped the proposal. Barney Frank, a Democrat Representative from Massachusetts, said that the problem with Fannie Mae and Freddie Mac was exaggerated.

In 2005, Senator John McCain warned of a mortgage collapse. Senator McCain sponsored “The Housing Enterprise Regulator Act of 2005 (S.190 109th). The Democrats blocked the bill. He tried again in 2207, and the bill was again blocked.

Fannie Mae and Freddie Mac made large campaign donations to members of Congress. They also provided ‘special mortgage rates’ to certain Congressional leaders. Many of the executives at Fannie Mae and Freddie Mac were government officials after the housing crisis–they paid no price for their mismanagement of Fannie Mae and Freddie Mac–instead they profited greatly while the bubble was growing and after the collapse.

I tell this story for one reason. We have heard the media blame greedy bankers on the housing market collapse and the economic chaos that followed. Actually, greedy bankers were not the problem–government regulation and Congressmen who accepted contributions and sweetheart loan deals from mortgage companies were. Why were Fannie Mae and Freddie Mac, government-sponsored agencies, making campaign contributions?

This is one aspect of the swamp Donald Trump was elected to drain. People connected to the mortgage companies or the government walked away from the housing bubble with millions; many average Americans lost their homes and their jobs. It is ironic that President Obama, who should have been able to relate to the Middle Class, decimated the Middle Class during his eight years in office. I am thankful that we have elected someone as President who has business experience and a proven history of economic success.

On Wednesday, The New York Post posted an article about the current state of the American economy. The article cites claims by the media that President Obama is handing Donald Trump a ‘booming’ economy. The article then asks the question, “If the economy is so all-fired ducky, how come Americans just tossed out the party that’s claiming credit for it?”

The article explains:

The truth is that the Obama years have been among America’s worst for the economy. His eight years will go down in history as the Great Recession, even though for much, even most, of the span, we weren’t technically in a recession.

It just felt that way. And no wonder. Obama’s is the only modern presidency that failed to show a single year of growth above 3 percent, a point Trump stressed during the campaign (and that was conceded even by the website Politifact).

Plus, the Obama economy failed to prosper even though the Federal Reserve had its pedal to the metal. Its quantitative easing, $2 trillion balance-sheet expansion and zero-interest-rate policy all produced zilch.

Except for pumping up Wall Street and producing what Trump calls a “false economy.” The recent declines in the unemployment rate are due less to the uptick in employed persons than to an increasing number of persons leaving the labor force.

In a “true economy,” what people would boast about would be the number of employed persons rising faster than the size of an expanding workforce. In reality, the job participation rate is the lowest in decades, as millions are too discouraged to seek a job.

And the recent record Dow Jones average? It’s pumped up by the Federal Reserve. It’s nowhere near a record if the Dow is calculated in the most traditional measure of value. The gold value of the Dow peaked way back in 1999.

President Obama took office in the midst of the bursting housing bubble. Just for the record, the bubble was not George W. Bush’s fault. The bubble had its roots in the Community Reinvestment Act (CRA), passed by Congress in 1977. The CRA was revised in 1995 under President Clinton. The new provisions forced banks into making subprime loans to borrowers who might not be able to pay them back. The new provisions also allowed subprime mortgages to be traded with securities. Since many subprime loans were underwritten by Fannie Mae or Freddie Mac, agencies closely related to the government, the government eventually had to bail out the banks who made these loans. As the bubble formed, President Bush, and later Senator John McCain pushed legislation to curb the overenthusiastic housing market. In both cases they were stopped by Democrats who had either taken large campaign donations from Fannie Mae or Freddie Mac or had received ‘sweetheart mortgage deals’ from mortgage companies closely associated with the subprime mortgage market. (How is it that Fannie Mae or Freddie Mac can legally make campaign donations?)

Congress and two Presidents caused the housing crisis. I am sure that President Carter and President Clinton meant well when passing or amending of the CRA. However, the housing bubble is a shining example of what happens when the government attempts to interfere with the free market. How many banks would have avoided the subprime mortgage market and held the housing bubble in check if they had not been forced to issue subprime mortgages? The free market works. Government interference in the free market does not work. Hopefully President Trump will allow the principles of the free market to bring the American economy into a growth cycle. A GDP of less than 3 percent is not acceptable.

Yesterday The New York Post reported that the Obama Administration is making the same mistakes that led to the housing market collapse of 2008. One of the major causes of the economic collapse of 2008 was the amount of money borrowed for housing loans that was not going to be paid back. There were a number of causes of the problem. The economy had been good for a while, interest rates were reasonably low, people had moved into bigger houses, and banks were pressured to give loans to people with questionable credit and unsubstantiated income. As gasoline prices doubled, many of the people who had taken out loans that were on the edge of their ability to repay found themselves unable to make the payments. The banks, in turn, sold those mortgages as if they were going to be paid back, and they were not paid back. The YouTube videoBurning Down the House provides one of the best explanations of the cause of the 2008 collapse that I have seen. I am posting it here in case YouTube takes it down:

That was then, but where are we now?

The story in The New York Post reports:

As Paul Sperry recently noted in The Post, Team Obama has pushed mortgage lenders to offer home loans to folks with shaky credit, setting up conditions for another housing-market collapse.Wasn’t the last one bad enough?

Credit scores of approved borrowers, for example, have been trending down, even as their debt levels have grown.

Some borrowers need only put 3 percent down to get a Fannie Mae loan — even if the downpayment is a gift. Fannie also has started up a new subprime-lending program.

The Office of the Comptroller of the Currency recently warned that mortgage underwriting standards have slipped and now reflect “broad trends similar to those experienced from 2005 through 2007, before the most recent financial crisis.”

When the economy and housing prices turn south again, a lot of these loans will go bad, just as they did last time.

The writer of the article states that he doesn’t believe the loans will cause a worldwide problem this time because the banks have learned their lesson. He does point out, however, that a large portion of housing loans made in America are government insured. That means taxpayers will be on the hook this time (I thought we were the last time). Hang on to your hats. Here we go again.

In an orchestrated assault on the credit standards underpinning mortgages, no fewer than four Obama agencies have gone to war against FICO. If politicians don’t want another bank crisis, they’ll stop the attack.

Home loan approvals hinge on FICO credit scores. But the Obama regime views FICO scoring as too strict, cutting off millions of low-income minorities and immigrants from mortgages. So it’s pressuring Fannie and Freddie, which control 90% of the mortgage market and set the underwriting standards for the entire mortgage industry, to abandon FICO for a softer standard in evaluating credit risk.

We have been down this road before. It is unwise to lend money to people who are probably not able to pay it back.

The article further reports:

FHFA chief Mel Watt, the former Democrat congressman who before the crisis demanded Fannie and Freddie back loans for welfare recipients in his district, has instructed Fannie and Freddie, the failed mortgage giants now under his control, to come up with “alternative credit scoring models.” They’re expected to make the transition sometime this quarter.

The hope is that the new scoring regime will inflate scores by as much as 100 basis points, thereby qualifying millions of low-income African-Americans with subprime credit and Hispanic immigrants with thin credit for prime home loans.

This is coming at a time when Fannie is launching a subprime mortgage product called HomeReady that caters to immigrants with weak credit and limited income. The new loan lets borrowers for the first time bundle income from roommates and relatives to meet qualifications for income. They have to put only 3% down and can use gifts from nonprofit groups to subsidize their down payments.

Before the crisis, your income had to be your own.

Now, as a renter, you can get a conventional home loan backed by Fannie by claiming others’ income.

You don’t have to bring much financial wherewithal to the table. You can even live in government-subsidized housing. Just as long as you round up enough income earners and pool finances to help meet a minimum debt-to-income ratio of 45%-50%.

Could we please elect people who have the intelligence to learn from their previous mistakes?

The mainstream media never hesitates to rewrite history when it is to their advantage, but every now and again they accidentally begin to report actual facts.

The Nation posted an article yesterday about the role Bill Clinton played in the 2008 mortgage meltdown. This information is readily available information that the mainstream media has so far ignored.

The article reports:

Candidate Clinton is essentially whitewashing the financial catastrophe. She has produced a clumsy rewrite of what caused the 2008 collapse, one that conveniently leaves her husband out of the story. He was the president who legislated the predicate for Wall Street’s meltdown. Hillary Clinton’s redefinition of the reform problem deflects the blame from Wall Street’s most powerful institutions, like JPMorgan Chase and Goldman Sachs, and instead fingers less celebrated players that failed. In roundabout fashion, Hillary Clinton sounds like she is assuring old friends and donors in the financial sector that, if she becomes president, she will not come after them.

The seminal event that sowed financial disaster was the repeal of the New Deal’s Glass-Steagall Act of 1933, which had separated banking into different realms: investment banks, which organize capital investors for risk-taking ventures; and deposit-holding banks, which serve people as borrowers and lenders. That law’s repeal, a great victory for Wall Street, was delivered by Bill Clinton in 1999, assisted by the Federal Reserve and the financial sector’s armies of lobbyists. The “universal banking model” was saluted as a modernizing reform that liberated traditional banks to participate directly and indirectly in long-prohibited and vastly more profitable risk-taking.

While that is true, you need to take a step back and look at what actually made that change necessary. Due to some changes in federal regulations and pressure by groups like ACORN, banks were forced to issue loans to people who could not pay them back. This sub-prime loans were doomed to fail, and banks needed to find a way to cut their loses. The issuing of the sub-prime mortgages goes back to a law passed during the Carter administration that was put on steroids during the Clinton administration. When the Bush administration called for curbs on Freddie Mac and Fannie Mae, they were rebuffed by Chris Dodd and Barney Frank in Congress. It was later revealed that Chris Dodd had a ‘friends and family’ mortgage from one of the major players in the sub-prime mortgage market.

For the entire story, please watch the video below. I have posted it before; it is not new. I am embedding it because I am afraid that it will disappear from YouTube.

On September 5, the Weekly Market Wrap at NASDAQ listed the unemployment rate at 6.1 percent.

The article also reported:

In economic news, in the week ending August 30, the advance figure for seasonally adjusted initial claims (unemployment benefits) was 302,000, an increase of 4,000 from the previous week’s unrevised level of 298,000. The 4-week moving average was 302,750, an increase of 3,000 from the previous week’s unrevised average of 299,750.

So we have an increase of unemployment claims, but an unemployment rate holding steady at 6.1 percent. How does the government do that? Easy–shrink the labor force so the percentage stays the same.

It came as quite a disappointment last Friday when the Labor Department announced that the U.S. economy created only 142,000 net jobs in August. Even worse, this anemic number came with a downward revision of a combined net 28,000 jobs for the previous two months.

Now add to these a third unwelcome piece of news: The U.S. labor force participation rate — that is, the share of working-age Americans who are either working or seeking work — has returned to a multi-decade low of 62.8 percent, down from 65.9 percent before the recession. This number, which has been in a nosedive ever since the 2008 recession began, remains mired at levels that haven’t been seen since women began entering the workforce in large numbers. Fewer Americans are in the labor market today than at any point since 1978.

President Obama is not responsible for what happened before he took office, but his policies have resulted in the failure of the economy to rebound from the 2008 recession.

I apologize for the length of what is to follow, but every now and then I think it is a good idea to remember how we got here.

The recession is not President Obama’s fault; it is not President Bush’s fault; it is not the result of greedy bankers, capitalism, or Wall Street. It is the result of faulty government regulation. The recession was the result of the housing bubble–it’s roots go back to the 1977, when President Jimmy Carter signed into law the Community Reinvestment Act (CRA) passed by Congress. Congress had good intentions–the law was passed to help low-income families buy houses. The idea was to reduce discrimination in housing loans. In 1995 President Clinton modified the law–the idea was to make the paperwork easier to navigate and to make the CRA ratings of banks available to the public. The securitization of CRA loans (including subprime mortgages) began in 1997. In 1999 Senators Chris Dodd and Charles Schumer worked on legislation that allowed the Federal Deposit Insurance Act to allow banks to merge or expand into other types of financial institutions. Under pressure from political action groups, banks began issuing more subprime loans–selling them in groups in investment packages along with loans that had a better chance of being paid back.

In October 2000, Fannie Mae announced a pilot plan to purchase $2 billion of “MyCommunityMortgage” loans. The pilot lenders agreed to customize affordable products for low and moderate-income borrowers. There is nothing wrong with the intention here, but it is not a good idea to lend money unless you have a reasonable expectation of getting it back. The increase in loans caused the price of housing to rise faster than the rate of inflation (which is traditionally the rate of the rise of housing costs). Companies began offering ‘interest only’ and ‘variable interest’ loans so that people could make lower payments on larger houses while the value of their houses increased. Banks were forced to issued subprime mortgages or pay large penalties to the government. Fannie Mae prospered because it made more loans and sold them. It’s executives raked in amazing amounts of money. The companies writing the subprime mortgages wrote sweetheart mortgage loans to their friends in Congress. In 2004, 92 percent of the loans issued by Fannie Mae were variable-interest- rate loans; in 2005, 91 percent were variable-interest-rate loans. Fannie Mae guaranteed the mortgages they granted and sold them to banks and investors. Home ownership and home prices continued to rise. Then, in 2004, interest rates began to rise, and gasoline prices climbed. In 2007 the subprime mortgage market collapsed because low-income families could not pay their mortgages. Foreclosures increased. There were no buyers. Home prices began to drop. By September of 2008, twelve banks had failed during that year because of worthless government securities issued by Fannie Mae.

So did anyone try to stop this runaway train? Yes. In 2003, President Bush proposed legislation to overhaul the housing finance industry. The President wanted to create a new agency within the Treasury Department to oversee Fannie Mae and Freddie Mac. The Democrats in Congress blocked the legislation, saying it might interfere with the ability of low-income families to buy homes. Barney Frank, a Democrat from Massachusetts, stated, “The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.” Melvin Watt, a Democrat from North Carolina, stated, “…and in the process weakening the bargaining power of poorer families and their ability to get affordable housing.” In 2005, John McCain, a Republican from Arizona, warned of an upcoming mortgage collapse. He sponsored the Housing Enterprise Regulatory Act of 2005 (www.govtrack.us Bill S-190). The purpose of the bill was to regulate Fannie Mae and Freddie Mac. Democrats blocked the bill. The bill was reintroduced in 2007. Again, it was blocked by members of the Senate who had received benefits from the companies involved in the subprime scandal. Senator Chris Dodd, a Democrat from Connecticut, had received a sweetheart loan from one of the companies. Jim Johnson, a key member of the Obama campaign team, also received a sweetheart loan from Countrywide Mortgage. From 1991 through 1998, Jim Johnson was the CEO of Fannie Mae. Johnson received $21 million during his tenure there.

The original intent of the CRA was good. It is a wonderful idea to give everyone an opportunity to buy a home. Unfortunately, the expansion of the CRA had the exact opposite effect. Because the government interfered in the free market, a bubble was created. Expectations of what a house should be changed during that time. In the 1960’s and 1970’s there was the concept of a ‘starter home.’ A starter home was usually a relatively inexpensive small house that was affordable, and the equity gained while living there could be used to buy a larger house after a couple started a family. That concept is gone. Look around. What are people building in your neighborhood? The housing bubble reflected a change in what Americans expect in housing. We have lost our moorings for the sake of conspicuous consumption. There is nothing wrong with owning a large home, but we need to balance our wishes with our income; otherwise, America will drown in personal debt as well as federal debt.

Now this is where we enter the territory of a geopolitical thriller. Mr Paulson:

“Here I’m not going to name the senior person, but I was meeting with someone… This person told me that the Chinese had received a message from the Russians which was, ‘Hey let’s join together and sell Fannie and Freddie securities on the market.’ The Chinese weren’t going to do that but again, it just, it just drove home to me how vulnerable I felt until we had put Fannie and Freddie into conservatorship [the rescue plan for them, that was eventually put in place].”

For me this is pretty jaw-dropping stuff – the Chinese told Hank Paulson that the Russians were suggesting a joint pact with China to drive down the price of the debt of Fannie and Freddie, and maximize the turmoil on Wall Street – presumably with a view to maximizing the cost of the rescue for Washington and further damaging its financial health.

Paulson says this guerrilla skirmish in markets by the Russians and Chinese didn’t happen.

Now wait a minute. Even if the Russians and Chinese decided to manipulate American markets, the housing bubble was a result of the policies of the American Congress–no one else is to blame.

I have posted the YouTube video“Burning Down the House” before, but in case you missed it, here it is again. This video explains the cause of the 2008 financial meltdown. The information included in the video is a matter of public record, but has not been widely reported.

The Treasury is keeping Fannie Mae and Freddie Mac, the taxpayer-backed loan guarantee giants, off the federal budget.

How is this possible?

In 2008, the government took control of Fannie and Freddie and agreed to shield the entities from bankruptcy. Now that the country has recovered from that housing crisis, and money is coming back in through these government-sponsored entities (GSEs), their true cost remains hidden.

…It’s jaw-dropping that such massive flows of taxpayer money could be kept outside the federal budget. And as you can imagine, keeping that cash off the books distorts the overall budget picture.

Just for a start, the housing entities’ “profits paid to the Treasury in 2013 alone have resulted in federal spending and deficits being underreported by more than $100 billion,” says Boccia, the Grover M. Hermann Fellow.

This affects public perception of the deficit—and even lawmakers’ perceptions as they make plans to spend more in the coming year’s budget.

The obvious solution to this is to eliminate GSEs. They have become another way that Washington can control more taxpayer money without being held accountable.

There will be an election in November. All of the House of Representatives and one-third of the Senate will be up for re-election. Unless we elect people who will actually represent us and not become part of the Beltway establishment, we will be watching America descend into bankruptcy.

The article points out that because Congress chose to ignore the actual cause of the problem, the new rules will not solve the problem. The article cites comments by Diane Katz of the Heritage Foundation.

The article reports:

As Katz points out, Washington’s response to the financial crisis of 2008 rests on the premise that the housing bubble and subsequent crash were the fault of unscrupulous mortgage lenders who took advantage of naive, uninformed consumers. In reality, she says, “lenders and borrowers were responding rationally to incentives created by an array of deeply flawed government policies.”

Rather than admit that the government was a major part of the problem, Congress simply directed the focus elsewhere, passed laws that will not address the problem, and continued on its way.

The article reports:

At the heart of the new regulation is a requirement that lenders ensure that borrowers have the “ability to repay” a mortgage. Borrowers will now have the right to sue lenders for misjudging their financial fitness. Borrowers may also assert a violation of the ability-to-repay requirement as a defense against foreclosure, even if the original lender has sold the mortgage or assigned it to a servicing firm.

The impact of this new scheme is obvious. As Katz says, it “will raise the costs and risks of mortgage lending” and thereby result in less credit availability.

I wonder if you lie about your income on your mortgage application if you still have the right to sue.

Diane Katz sums up the problem:

The 3,500 pages of new mortgage regulation will not guarantee that a housing bubble and collapse will not happen again. Nor can such inflexible standards possibly keep pace with the constant changes in market conditions. But it will constrain the availability of credit and increase the costs. Such a regime eviscerates the fundamental principles of a mortgage “market,” thereby punishing consumers more than protecting them.

The federal government gets more power to regulate and the American people pay the price.

In response, administration officials say they are working to get banks to lend to a wider range of borrowers by taking advantage of taxpayer-backed programs — including those offered by the Federal Housing Administration — that insure home loans against default.

Housing officials are urging the Justice Department to provide assurances to banks, which have become increasingly cautious, that they will not face legal or financial recriminations if they make loans to riskier borrowers who meet government standards but later default.

Part of the problem here is the government’s intervention into the housing market. Banks should be left alone to make their own decisions on issuing loans.

The article further reports:

Deciding which borrowers get loans might seem like something that should be left up to the private market. But since the financial crisis in 2008, the government has shaped most of the housing market, insuring between 80 percent and 90 percent of all new loans, according to the industry publication Inside MortgageFinance. It has done so primarily through the Federal Housing Administration, which is part of the executive branch, and taxpayer-backed mortgage giants Fannie Mae and Freddie Mac, run by an independent regulator.

It really is time to let the private sector be the private sector and shrink to government to a reasonable size.

“Here in America, we know the free market is the greatest force for economic progress the world has ever known. But we also know the free market works best for everyone when we have smart, commonsense rules in place to prevent irresponsible behavior,”

That is an amazing statement. First of all, anyone who has children understands that putting rules in place to prevent irresponsible behavior does not always work–allowing people to suffer the consequences of their irresponsible behavior eventually works–sometimes it takes a while. Unfortunately our society has padded the floor too many times and has helped people avoid the consequences of their irresponsible behavior. Controlling the free market is not the answer–allowing the free market to work properly is.

Meanwhile, speaking of irresponsible behavior–what about irresponsible behavior that was encouraged by the government?

Remember the outrage over the exposure of ACORN travesties including voter fraud and offering advice on tax evasion that led to Congress overwhelmingly voting to defund the scandal plagued organization (345-71 in the House, 85-11 in the Senate)?

Less salacious, but far more economically disastrous was the “starring role” that ACORN played in precipitating the financial meltdown of 2008 initiated by the sub-prime mortgage market meltdown. According to acclaimed investigative journalist Matthew Vadum, ACORN’s “wanton disregard for the economic wellbeing of America” through the very direct involvement for decades in federal housing policy and programs at Fannie Mae and Freddie Mac, perpetually weakening underwriting standards, and ignoring or even falsifying loan documentation put ACORN squarely at the center of the collapse of the sub-prime mortgage house of cards.

Huge numbers of loans that eventually became the problem trace to ACORN originations. Vadum discovered that ACORN housing brochures openly bragged about how they undermined mortgage loan underwriting standards.

Joe McGavin used to be the director of counseling for ACORN housing in Chicago and operations manager for an ACORN offshoot, Affordable Housing Centers of America (ACHOA). After the scandal-ridden collapse of ACORN, McGavin resurfaced in 2011 as the new director of the Illinois Hardest Hit Program. The Hardest Hit Fund (HHF) is one of many programs established by the Obama Administration to “assist homeowners who have experienced an income reduction due to unemployment or substantial underemployment” during the economic recession.

The chart is based on numbers from the International Monetary Fund. The chart is contained in an article by Arthur Laffer about the impact of government stimulus spending.

In the article Mr. Laffer points out:

The four nations—Estonia, Ireland, the Slovak Republic and Finland—with the biggest stimulus programs had the steepest declines in growth. The United States was no different, with greater spending (up 7.3%) followed by far lower growth rates (down 8.4%).

These numbers are particularly relevant as countries around the world are debating whether or not another round of stimulus spending is the answer to the current recession.

Mr. Laffer states:

Still, the debate rages between those who espouse stimulus spending as a remedy for our weak economy and those who argue it is the cause of our current malaise. The numbers at stake aren’t small. Federal government spending as a share of GDP rose to a high of 27.3% in 2009 from 21.4% in late 2007. This increase is virtually all stimulus spending, including add-ons to the agricultural and housing bills in 2007, the $600 per capita tax rebate in 2008, the TARP and Fannie Mae and Freddie Mac bailouts, “cash for clunkers,” additional mortgage relief subsidies and, of course, President Obama’s $860 billion stimulus plan that promised to deliver unemployment rates below 6% by now. Stimulus spending over the past five years totaled more than $4 trillion.

If you believe, as I do, that the macro economy is the sum total of all of its micro parts, then stimulus spending really doesn’t make much sense. In essence, it’s when government takes additional resources beyond what it would otherwise take from one group of people (usually the people who produced the resources) and then gives those resources to another group of people (often to non-workers and non-producers).

If the government wants the producers in our society to continue producing, it needs to understand how human nature and incentives work. If I can make more money by not working than I can for working, it doesn’t take a rocket scientist to figure out that I am less likely to work.

I think Mr. Laffer is on to something. Please read the entire article at the Wall Street Journal for more information on the impact of government stimulus programs.

As you can see, family net worth was climbing pretty steadily until 2007. Part of the reason for the drop is the housing bubble. That bubble was the result of the Congressional plan to enable all Americans to buy houses whether they could afford to pay off the mortgage or not. A lot of that had to do with Fannie Mae and Freddie Mac and their collapse, but even then, these numbers are disturbing.;

The article concludes:

The Fed changed its methodology for the survey starting in 1989, so it doesn’t compare current numbers with pre-1989 ones. At the risk of comparing apples and oranges, I went ahead and did the calculations for two earlier surveys—in 1962 and in 1983. In 1962, median net worth (in 2010 dollars) was $54,200. In 1983, it was $88,000.

If those numbers are correct, then median family net worth rose 62 percent from 1962 to 1983, then fell 12 percent from 1983 to 2010. Since the methodology of the survey changed, those numbers are almost certainly off, but there’s no way for an outsider to tell how much—or even in which direction. Still, if they’re anywhere close to reality, it’s more evidence of how the American economy has failed to generate rising living standards for most people in recent decades.

At the same time the net worth of families was declining, the cost of living has gone up–gasoline is double what it was five years ago, food prices have gone up, our tax burdens have increased, etc. Some of us are still paying real estate taxes on the value of our houses before the housing bubble burst. It really is time to elect people who understand the economy–the things we are currently doing are not working.

Yesterday the Daily Caller posted a summary of the payroll tax cut bill that recently caused so much hand wringing in Congress. The bill that was passed was pretty much what was suggested at the beginning of the negotiations (except for the two-month limit).

The Daily Caller reports:

—Retains through Feb. 29 the current 4.2 percent rate for Social Security payroll taxes paid by 160 million workers, instead of letting the rate rise to 6.2 percent on Jan. 1.

—Requires President Barack Obama to approve construction of the Keystone XL oil pipeline from Canada to Texas within 60 days unless he declares the project would not serve the national interest.

—Price tag of $33 billion. Paid for by increasing home loan guarantee fees charged to mortgage lenders by Fannie Mae, Freddie Mac and the Federal Housing Administration by one-tenth of 1 percentage point. The fee is passed on to home buyers and will apply to many new purchases and refinancings starting Jan. 1. For a $200,000 mortgage, the fee increases a borrower’s cost by about $17 a month.

—Requires House and Senate leaders in both parties to name negotiators to work on a bill extending the payroll tax cut for a year, extend federal jobless benefits for the long-term unemployed and keep Medicare payments to doctors at their current level.

I guess I am wondering why we need a committee to extend the bill for a year. The gang of twelve didn’t work out too well, so why are we doing this again?

In a bid to stem taxpayer losses for bad loans guaranteed by federal housing agencies Fanny Mae and Freddy Mac, Senator Bob Corker (R-Tenn.) proposed that borrowers be required to make a 5% down payment in order to qualify.

His proposal was rejected 57-42 on a party-line vote because, as Senator Chris Dodd (D-Conn) explained, “Passage of such a requirement would restrict home ownership to only those who can afford it.”

The Hill is reporting today that Barney Frank will not be running for reelection in 2012.

The article reports:

His legislative legacy is likely to be the Dodd-Frank financial reform bill that passed in 2010 in the wake of the Wall Street meltdown that sent the economy into a tailspin in 2008. Hailed by the Obama administration, the law has drawn sharp criticism in the Republican presidential nomination fight, and one leading contender, former Speaker Newt Gingrich (R-Ga.), even suggested that Frank be jailed, along with Dodd, for their support of the mortgage giants Fannie Mae and Freddie Mac in the lead up to the financial crisis.

I suspect that if the Republicans take two branches of government in the 2012 election, Dodd-Frank will be revised or repealed. It was a legislative solution that never addressed the actual cause of the problem. Representative Frank’s statements in the years before Fannie Mae and Freddie Mac’s collapse declaring that the government would not be on the hook if the companies went bankrupt are a matter of record. His role in making home loans available to people not able to pay them back is also a matter of record.

With the recent redistricting in Massachusetts, I now live in Barney Frank’s district. It will be interesting to see exactly what happens next.

Business Insider reported yesterday that Rham Emanuel sold up to $250,000 in Freddie Mac stock on February 21, 2003, days before it dropped by 10 percent and weeks before the announcement that it was under investigation. This is reported in Peter Schwiezer’s new book “Throw Them All Out.”

The article reports:

While by no means illegal; lawmakers are exempted from the insider trading laws they impose on private traders. But the timing of the trades is certainly suspect, especially given Emanuel’s service on the board during the time period for with the federal government was investigating the actions of Freddie Mac executives.

Why are lawmakers exempted from the insider trading laws they impose on private traders?

The beginning of cleaning up Washington, D. C., might be to make all lawmakers and office holders subject to the laws they pass. Wouldn’t that be a really good idea?

Reuters posted a story today about the fact that Fannie Mae is has lost $5.1 billion in the third quarter of this year and needs $7.8 billion in federal aid to stay afloat. Meanwhile back at the ranch, Mary Katharine Ham at the Daily Caller posted a story today stating that Fannie Mae and Freddie Mac, to whom taxpayers have already given billions, gave out $12.79 million in bonuses to its executives for meeting modest goals.

My husband works in the private sector. There was a year when he got no raise and no bonus because the economy was bad and the company he works for was trying not to lay anyone off and still stay profitable. I guess my question is how come a company that loses $5.1 billion in three months and is being subsidized by taxpayers is handing out bonuses amounting to $12.79 million.

This is a total misuse of taxpayer money and needs to be stopped. If the company was making a profit and operating on its own money, I would have no problem with any bonuses they wanted to hand out. However, this is taxpayer money and should be spent much more carefully.

Today’s Wall Street Journal posted an editorial updating what is happening with Fannie Mae and Freddie Mac. It seems that we have not yet learned our lessons about these two organizations.

Florida Republican Bill Posey and New York Democrat Gary Ackerman are asking fellow members of the House of Representatives to sign a letter supporting an amendment to an appropriations bill recently passed in the Senate. The amendment will increase the mortgage limits that Fannie Mae, Freddie Mac, and the Federal Housing Administration can insure from $625,500 to $729,750.

The article concludes:

There’s talk now that the House and Senate will convene a conference later this week to negotiate the final details on the appropriations bill that includes the loan-limit hike, without the accountability of so much as a floor debate or a hearing. That would confirm that, for all its reform talk, the current House majority is little better than the one that disgraced Republican principles in 2005-2006.

By this time, everyone should be aware of the federal policies that precipitated the housing bubble and its collapse — the push by Congress and two administrations to push higher-risk lending in order to expand home ownership, as well as the effort by Congress to get Fannie Mae and Freddie Mac to spread that risk through mortgage-backed securities. While Wall Street made the situation worse by developing risky derivatives on those securities and failed to recognize the risk inherent in the securities themselves, the collapse wouldn’t have occurred at all had the federal government not intervened to distort lending for their own social-engineering goals.

It is becoming very obvious that establishment Republicans are not really very different from the Democrats that got us into this mess. There is only one solution–elect tea party candidates who will not be swayed by the Republican establishment. As long as the current Republican leadership is in control, there will be no change in Washington.

On Friday, Market Watch reported that the Federal Housing Finance Agency, overseers of Fannie Mae and Freddie Mac, is ready to sue a dozen major banks, claiming they misrepresented mortgage securities they bundled together and sold during the run-up to the burst of the housing bubble. Bloomberg.com ran a similar story on Saturday reporting:

Edward J. DeMarco, head of the U.S. watchdog overseeing Fannie Mae and Freddie Mac, says his job is protecting taxpayers. His critics think he’s undermining the government’s efforts to shore up the economy.

I firmly believe that the government is suing the wrong people. There is a video at YouTube I have linked to in the past called Burning Down The House which does a very good job of detailing the history of the housing bubble. It shows Congressional testimony relating to decisions that caused the bubble. It is well worth watching.

“ACORN drafted language to loosen underwriting standards and decrease down payments in the housing industry, paving the way for the high rate of subprime loans millions of Americans eventually defaulted on.

“ACORN used provisions in the Community Reinvestment Act of 1977 that allowed community groups to challenge bank mergers and acquisitions if a bank did not adequately invest in its own community. These challenges, which featured ACORN’s standard intimidation tactics, successfully forced banks to make lending agreements with ACORN Housing. If banks refused ACORN’s demands, they jeopardized approval of mergers in a timely manner. ACORN Housing moved to become a conventional service provider for the loans. ACORN reaped profits from over a billion dollars in loans to low-income neighborhoods. Because of the policies and financial instruments developed, in part through ACORN’s lobbying activities, borrowers eventually defaulted on the loans. The end result was the bursting of the housing bubble.

“ACORN Housing received a total of $39,925,620.13 from Bank of America, JPMorgan Chase & Co., CitiBank, HSBC, CapitalOne, and SunTrust. These lenders and banks also provided ACORN with grants, address and bank account information of at-risk homeowners so ACORN could provide free counseling services. Instead, ACORN used the address and bank account information to target struggling Americans who would be signed up as dues-paying members of ACORN. ACORN’s membership recruiting brought in $48 million a year for ACORN — a boon for their Muscle for Money program.”

The banks were not totally innocent in the financial collapse of the housing market, but they were not entirely guilty either. When the government and ACORN required the banks to make risky loans, the banks dealt with the situation by bundling sub-prime loans with good loans and selling them as a package–thus selling off any mortgages that might not be repaid. That was an understandable business decision. What we need is a local banker who knows his customers and can make decisions regarding mortgages based on that knowledge. Unfortunately, when ACORN began protesting banks that were not making enough risky loans, the game changed. It’s time to let banks be banks and the government be the government. There is some need for regulation, but the overregulation and rules of the 1990’s helped cause the problems. The government is suing the wrong people–but I don’t think they can sue themselves.